Falling out of love with Apple


Hedge fund (and poker) star David Einhorn has long been in love with Apple. Until Thursday when the news hit that he’s making a move against the company. Here are the details from the New York Times.

The hedge fund magnate David Einhorn has long been known as a fervent fan of Apple. But he is making an unusually public stand to oppose a move by the company: a lawsuit.

His hedge fund, Greenlight Capital, sued Apple on Thursday in an effort to block a move that would eliminate preferred shares. In a letter to fellow stockholders, Mr. Einhorn said the move to amend the company’s charter would unnecessarily limit the technology giant’s ability to create value for shareholders and called on them for support.

“This is an unprecedented action to curtail the company’s options,” he wrote in the letter. “We are not aware of any other company that has ever voluntarily taken this step.”

The stated goal of the legal action is technical, based on an accusation that Apple is violating securities rules by bundling several shareholder initiatives in one proposal. But underneath it lies deeper dissatisfaction with the company.

Activists have taken on increasingly bigger targets in recent years, including the likes of Hess and Procter & Gamble. But no one has dared to take on the onetime darling of the hedge fund community.

The Wall Street Journal had more of the technical details of the suit, which I’m sure their readers definitely want to understand.

Apple’s board already has the right to issue preferred stock, but it is asking shareholders at its annual meeting later this month to vote on a proposal that would require shareholder approval to issue the stock.

Mr. Einhorn’s lawsuit, filed in the federal court in Manhattan, argues that the very formulation of Apple’s proxy statement violates Securities and Exchange Commission rules that allow shareholders to vote on “each matter” in the proposals. The suit seeks a court injunction against Apple’s proxy vote, and says he asked twice this week for the company to stop the vote or to “unbundle” the proposal at issue, but was rejected by the company.

Apple said in a statement Thursday that its management team “has been in active discussions about returning additional cash to shareholders.” The company said it will evaluate Greenlight’s proposal to issue preferred stock, and emphasized that adoption of its own proposal wouldn’t prevent the issuance of the security.

Mr. Einhorn is asking Apple to create a “perpetual preferred stock” using operating cash flow. Preferred shares are often viewed as high-yielding securities that are less volatile than common shares and typically pay generous income akin to high-yield bonds. Mr. Einhorn suggests the preferred stock could yield a 4% dividend rate.

The Businessweek story detailed Einhorn’s press run on several business channels. (The below skips around, so read the whole story.)

David Einhorn loves Apple (AAPL). On CNBC (CMCSA) and Bloomberg Television appearances this morning, the hedge fund manager described the company as “phenomenal” multiple times. He reiterated that the single largest position his Greenlight Capital holds is a bullish bet on Apple. In a press release, he said the company was “filled with talented people creating iconic products that consumers around the world love.”

Einhorn has a cheerful, boyish face, and it almost appeared to pain him that all of this publicity has to do with him suing the company he loves.

“Several hundred dollars per share would be unlocked if Apple were to follow through on this suggestion,” Einhorn said of his proposals during the Bloomberg TV interview. He said he had spoken with Apple Chief Executive Officer Tim Cook on Feb. 6 in some detail, and that he hoped the dispute could be resolved amicably.

That might be difficult. Despite Einhorn’s affection for the listing, Apple is the largest company in the world by market value, is highly secretive and deliberate, and doesn’t like being pushed around. Einhorn has a long history of high-profile disputes with publicly traded companies. He is credited with single-handedly starting a 73 percent one-year drop in the price of Green Mountain Coffee Roasters (GMCR) with an October 2011 presentation, and he triumphed in a battle with Lehman Brothers before the financial crisis, spotting its insolvency problems well before many others.

While it might seem a bit inside baseball for some readers, executives and boards across the U.S. are watching to see if Einhorn can successful get what he wants either from Apple or from the courts. This is definitely a new tactic, so it will be interesting to see how the story plays out. From the coverage, you can see each publication’s tone coming through. And that’s also interesting.